Bank of England: All Seven Large UK Banks Pass Stress Tests

By Paul Hannon

The U.K.'s banking system has enough high-quality capital to withstand a crisis more severe than the one they faced in 2008 and 2009, the Bank of England said Monday.

Announcing the results of its annual stress tests, the BOE also said that each of the seven banks that were scrutinized also passed, although it said investors should note they did so only by cutting their dividend and bonus payments.

The annual tests were introduced in the wake of the global financial crisis, and are designed to find out whether banks have enough capital to take large losses without cutting back on their own lending. Banks that fail the test are required to add fresh capital.

The seven banks tested were Barclays PLC (BARC.LN), HSBC Holdings PLC (HSBA.LN), Lloyds Banking Group PLC (LLOY.LN), Nationwide Building Society, Royal Bank of Scotland Group PLC (RBS.LN), Santander U.K. Group Holdings PLC and Standard Chartered PLC (STAN.LN).

"The U.K. banking system would be resilient to deep simultaneous recessions in the U.K. and global economies, combined with large falls in asset prices and...misconduct costs," the BOE said.

The BOE said that U.K. banks entered the stress tests with common equity Tier 1 capital that was three times higher than before the global crisis, at 14.5% of risk-weighted assets. Even after the losses they faced under the stress scenarios, U.K. banks still had twice as much such capital as they did before the crisis, at 9.3% of risk-weighted assets.

The BOE said the stress tests also indicated that U.K. banks could withstand a disorderly departure from the European Union, a scenario that has become less likely since elections Thursday gave U.K. Prime Minister Boris Johnson a large majority in parliament.

The BOE's Financial Policy Committee also said it had "tweaked" its capital requirements for U.K. banks. From late 2020, U.K. banks will be required to have a countercyclical capital buffer equivalent to 2% of their risk-weighted assets, up from 1% now.

The buffer is designed to build up capital during periods of economic growth and expanding credit that can be drawn on during downturns. The BOE said that if it were to cut the buffer to zero from that level during a downturn, banks would be able to take GBP23 billion in losses without having to restrict their lending.

The BOE said it will also "consult" on an offsetting reduction in minimum capital requirements for banks, leaving their combined loss-absorbing capacity "broadly unchanged."

Write to Paul Hannon at [e-mail]

(END) Dow Jones Newswires

December 16, 2019 12:38 ET (17:38 GMT)

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